Abstract

In many developing economies, governments provide limited quantities of subsidized food rations to their urban population. This paper presents a positive analysis of the impact of such subsidy systems on the welfare of heterogeneous individuals within the urban and rural sectors, when the urban subsidy is funded through a levy on farmers. Though such an intervention has the appearance of a transfer from the rural to the urban sector, we characterize the conditions under which the opposite happens; that is, certain groups in the rural sector become better-off due to the intervention, while some of those in the urban sector become worse-off. Moreover, the rich turn out to be among the gainers while the poor are among the losers from the intervention. Such counter-intuitive outcomes arise not only because of the general equilibrium effects of the intervention, but also because a procurement cum rationing system entails particular types of price discrimination among individuals. In addition, we identify systematic patterns between the groups which gain versus those who lose from the intervention.

SSRN Rankings

About SSRN

We use cookies to help provide and enhance our service and tailor content.By continuing, you agree to the use of cookies. To learn more, visit our Cookies page.
This page was processed by aws-apollo5 in 0.109 seconds